Key pitfalls when managing Clients’ Money

When running a busy practice, compliance with AAT Clients’ Money policy may sometimes be overlooked.

In a nutshell, any money held by a firm which is not due to the firm for their fees, is clients’ money.

Feedback from Practice Assurance visits suggests that the majority of AAT Licenced Accountants and bookkeepers are compliant, although there are a few common issues.

  • Notably, any fees paid in advance for agreed professional work should not be treated as clients’ money. They should be paid into the firm’s bank account.
  • Fundamentally, it is of utmost importance to verify the identity of the client. Converting or concealing criminal property or terrorist funds, for example by allowing them to be passed through a clients’ money account, is a criminal offence under the Proceeds of Crime Act 2002. However, no offence is committed if a prompt report is made when this is suspected, to the law enforcement authorities and their permission obtained to continue the transaction. Guidance on reporting money laundering suspicions is contained in AAT’s Anti Money Laundering Toolkit.
  • Where clients’ money is held on behalf of someone who was already a client before the implementation date of AAT’s Clients’ Money policy, it is imperative that firms should consider carefully if it has sufficient evidence of the client’s identity from previous dealings.
  • Now and then, firms are not able to locate the Bank Trust letter. Essentially, when opening a clients’ account, a firm must notify the Bank in writing that all money standing to the credit of that account is held by the firm as clients’ money and that the Bank is not entitled to combine the account with any other accounts or exercise any right to set off or counterclaim against money in that in respect of any money owed to it on any other of the firm’s bank accounts; it is crucial that the Bank must acknowledge in writing that it accepts these terms. If the Bank does not provide the acknowledgement required within 20 business days of the firm sending the notice, the firm must withdraw all money from the account; close the account; deposit the money with another Bank in a clients’ bank account; or as a last resort, return the money to the client.
  • Without doubt, due care and integrity is required when handling clients’ money; it is important that any such monies are paid immediately into a designated clients’ account, or to the client. Clients’ money must be returned to the client promptly as soon as there is no longer any reason to retain it.
  • On occasion, some firms receive clients’ tax refunds into their firm’s bank account. Similarly, firms’ bank accounts are, on occasion, used for paying clients’ tax bills. It is paramount that aforesaid refunds and funds for paying clients’ tax bills are paid direct into a clients’ account; separate from the firm’s bank account.
  • Where money of any one client in excess of £10,000 is held or expected to be held by the firm for more than 30 days, the money must be paid into a client bank account designated by the name of the client or by a number or letters allocated to that account.
  • It is a requirement that client bank accounts are reconciled every 5 weeks.
  • Finally, regardless of any delegation they have made, the principal of a firm remains responsible for the firm’s compliance with the clients’ money policy.

Day to day, whilst handling clients’ money may amount to a modest proportion of a working week, it is essential that the AAT Clients’ money policy guidelines are implemented.

Dawn Clarkson will provide further guidance on how to review and update your approach to managing your clients’ monies with a free webinar hosted on February 21 at 12.30pm GMT. 

Dawn Clarkson is a licensed accountant and MAAT.

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